Stocks rallied in the final hour to finish near session highs Monday, erasing their earlier losses in choppy trading, following an FT report that China was in talks with Italy to purchase its bonds.
Stocks were trading lower for most of the day amid ongoing worries over Greece's mounting debt and as French banks braced for a possible downgrade by Moody's.
The Dow Jones Industrial Average gained 68.99 points, or 0.63 percent, to close at 11,061.12, rebounding from a triple-digit loss.
Intel and 3M were the biggest gainers on the blue-chip index.
The S&P 500 rose 8.04 points, or 0.70 percent, to end at 1,162.27. The Nasdaq rallied 27.10 points, or 1.10 percent, to finish at 2,495.09.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, was above 40.
Most S&P sectors finished higher, led by techs and financials. Materials ended lower.
Italy’s government is looking to China to see if they will make "significant" purchases of the debt-ridden nation's bonds and investments in strategic companies, according to the Financial Times.
According to Italian officials, China Investment's chairman Lou Jiwei, visited Rome last week for talks with finance minister Giulio Tremonti and Italy’s Cassa Depositi e Prestiti, a state-controlled entity that has established an Italian Strategic Fund open to foreign investors, according to the report.
Italian officials said further negotiations are expected to take place soon.
“[Italy’s move] seems logical—when you need money, you go to the guys that have it," said Brian Battle, vice president of trading at Performance Trust Capital Partners. “It’s good news that Italy’s seeking a solution, but it’s bad that they need a solution.”
European shares tumbled to close at a two-year low, dragged by French banks over a possible credit rating downgrade from the Moody's agency.
Shares of Banco Santander and Deutsche Bank tumbled.
Theresignation of the European Central Bank’s chief economist Juergen Starklast week also undermined confidence, with speculation rife that his departure will further complicate the response to the debt crisis.
“This week will be driven by Europe,” said Battle. “We’re below 1,150 on the S&P which is an important level and 1,125 will be the next stop…the close will be very critical today.”
Among financials, JPMorgan CEO Jamie Dimon said the U.S. should consider pullion out of the Basel group of global regulators, calling the new capital rules as "anti-American," in an interview with the FT.
Bank of America CEO Brian Moynihan said the financial giant is looking to reduce annual expenses by $5 billion by 2013through its cost-cutting initiative. Meanwhile, UBS and Citigroup cut their price targets on the firm. The bank's shares have almost halved year-to-date, hammered by the struggling economy and a wave of litigation over the bank's involvement in sub-prime mortgages.
Rival Goldman Sachs shares briefly traded below $100, its first time since Mar. 2009, after UBS and Citi cut their price targets on the firm. And HSBC launched the sale of its non-life insurance businessin an aim to cut down on non-core units, according to Reuters.
Meanwhile, widely-followed banking analyst Dick Bove of Rochdale Securities said fears of a possible impact of a European debt crisis on U.S. banks were overblown, with only Citigroup
Yahoo's former CEO Carol Bartz resigned from the company's board of directors over the weekend, a few days after she was fired as CEO.
Amazon.com is in talks with book publishers about launching a media library servicesimilar to Netflix for tablets and other digital books, according to the Wall Street Journal.
On the M&A front, NetLogic Microsystems surged almost 50 percent after Broadcom agreed to acquire the chipmakerfor in a deal valued around $3.7 billion.
Other chipmakers gained following the deal news. Micron Technologies jumped after UBS added the semiconductor company to its "most preferred" list. Rivals including Intel and Marvell also rallied.
Meanwhile, Berkshire Hathaway named Ted Weschler as its second investment manager. The portfolio manager was the anonymous winner of Buffett's annual auction for a lunch with Buffett the last two years—worth $5.3 million in total.
McGraw-Hill gained after the publishing firm said it would separate into two public companiesby the end of 2012.
Meanwhile, French group will buy U.S. underwater oil services specialist Global Industries for $937 million.
Meanwhile, Wells Fargo slashed its year-end target on the S&P 500 to 1,250 from 1,390, while BofA-Merrill raised its 12-month S&P 500 target to 1,450.
Trading volume was on the lighter side with the consolidated tape of the NYSE at 4.29 billion shares, while 1.09 billion shares changed hands on the floor.
Treasury prices edged lowerafter the government auctioned $32 billion in 3-year notes at a high yield of 0.334 and a bid-to-cover of 3.15. Auctions of 10-year notes and 30-year bonds are expected on Tuesday and Wednesday, respectively.
President Obama's jobs proposal is being sent to Capitol Hill later today, which is aimed to create thousands of jobs through tax cuts, spending on public projects and aid to state and local governments. On Tuesday and Wednesday, Obama plans to visit Ohio and North Carolina to rally the public to tell lawmakers to pass it.
—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC—
Coming Up This Week:
TUESDAY: NFIB small biz optimism index, import & export prices, 10-yr note auction, Samsung/MSFT tablet unveiled; Earnings from Best Buy
WEDNESDAY: Weekly mortgage apps, PPI, retail sales, business inventories, oil inventories, 30-yr bond auction, Microsoft analyst meeting
THURSDAY: CPI, Empire state mfg survey, jobless claims, current account, industrial production, Philadelphia Fed survey, credit card default rates reported; Earnings from Pier 1, Research In Motion
FRIDAY: Treasury international capital, consumer sentiment, quadruple witching
More From CNBC.com: